Boardwalk Empire: The Birth, High Times And Corruption of Atlantic City (37 page)

The squalor and desolation that greeted Crosby was a sobering experience. Within sight of the famed Boardwalk, there were entire city blocks that had been leveled with no signs of rebuilding—acres and acres of trash and rubble. There were hundreds of burned-out buildings and scores of rundown boardinghouses, occupied by poor, frightened old people. The Boardwalk hotels, which were of prime interest to Crosby, resembled huge abandoned caverns. None of them had turned a profit in years. For most of them, there wasn’t even enough money to knock them down. A person had to be either a visionary or a fool to see an investment prospect in Atlantic City. Crosby may have been a little of each. He decided Atlantic City would be the place for Resorts’ first expansion. Mary Carter Paint was coming back to New Jersey.

Characteristic of moves he made in the past, Crosby didn’t dabble when it came to sinking down roots in Atlantic City. He jumped in feet first. Within a short time, Resorts International signed a contract to purchase the Chalfonte-Haddon Hall, an aging, but still salvageable, 1,000-room hotel on the Boardwalk. Crosby’s company took title to the property prior to the gambling referendum and paid a purchase price of approximately $7 million. They also took an option on a 55-acre Boardwalk-front tract that had been condemned by the city. More important than its investments was Resorts International’s role in the 1976 campaign; C.R.A.C. would never have gotten off the ground but for upfront money contributed by Crosby’s firm.

Immediately following the referendum victory, Resorts International moved to secure its position in Trenton. Crosby hired the right people to guarantee he would be plugged into the state house as it began working on the legislation to regulate gambling. Three of the attorneys representing his interests in Trenton were Patrick McGahn, brother of State Senator Joseph McGahn; Marvin Perskie, uncle of Assemblyman Steven Perskie; and Joel Sterns, chief legal counsel to former Governor Richard Hughes and counsel to “Democrats for Byrne” in Brendan Byrne’s successful gubernatorial campaign.

By the time the legislature had finished its work, Crosby had little to complain about. Worries over tight controls on casino credit, complimentary liquor, hours, and minimum bets never became a reality. Each of these points was important to casino operators. They understood the psychology of gambling and feared tight controls would hurt the house’s take. When the Casino Control Act became law in June 1977, credit for gamblers was easy, drinks for players were permitted free of charge, casinos could operate 18 hours per day on weekdays and 20 hours on weekends, and minimum bets would be dealt with by the newly created Casino Control Commission through regulations that would benefit the casino industry.

There were also proposals talked about in the legislature, which Resorts International fought from becoming law. One early suggestion was that no casino should be permitted to open until a minimum of three casinos were ready for operation. Crosby’s lobbyists made sure this never saw the light of day. However short-lived its monopoly might be, Resorts International wanted to reap the profits from being the first casino to open in Atlantic City. Another provision originally discussed, but left out of the Casino Control Act, was language intended to prevent an Atlantic City casino from maintaining another operation outside of New Jersey. Resorts was permitted to continue with its Paradise Island casino, despite its questionable associations in the Bahamas.

A final issue vital to Resorts International was permission to use an existing hotel, the Chalfonte-Haddon Hall, as the site for a casino, rather than being required to construct a new facility. There were still those who believed the purpose of legalizing gambling was to spur the construction of new hotel facilities, not the renovation of old ones. But in the end, no one, not the legislature, the governor, nor the critics of casino gambling could overlook Resorts’ willingness to gamble on Atlantic City prior to the ’76 referendum. Resorts International would be open long before anyone else. But what Jim Crosby hadn’t bargained for was New Jersey’s bureaucracy.

The investigative agency, the Division of Gaming Enforcement, was created to screen casino applicants and report to the regulatory agency, the Casino Control Commission. From its inception, the Division was handicapped by internal disputes, questions about the competence of its staff, and friction between the Division and the Commission. Most of the investigators hired by the Division were former state troopers who didn’t have the background needed to pursue the questions raised by Crosby and Resorts’ financial practices. The skills needed weren’t those of a police officer, but rather the experience of an FBI or IRS agent. Working with these police officers was a collection of accountants, lawyers, and administrative personnel all equally inexperienced in the intricacies of a gambling operation. As the months wore on and the Division’s bureaucrats sank their teeth into the application process, it seemed their review would go on forever.

By early 1978, some 16 months after the voters had said YES, Resorts was still being investigated. Jim Crosby was upset. The length of the investigation began to draw criticism from the politicians and the media. To the average person, the delay in getting casinos going was bureaucratic foot-dragging. The fact that Resorts International was a complicated financial entity with a long history, various subsidiaries, and some shady relationships in the past meant nothing. The pressure mounted and Resorts’ lawyers persuaded the legislature that it had to act. The plan, for which Joel Sterns is given credit, was to give Resorts a temporary license to operate a casino.

Crosby’s company was given a six-month permit, renewable for 90 days, while the investigation continued. Having succeeded in making an end-run on the review process, Resorts opened its doors on May 28, 1978, to thousands of customers, literally waiting in line. Within several months time, Resorts International emerged as the most profitable casino in the world. In 220 days of business in 1978, Resorts had gross winnings exceeding $134 million. In 1979, its first full year of operation, Resorts grossed an incredible $232 million.

During the time Resorts was the only game in town, customer demand was phenomenal. Hordes of eager patrons waited in line for hours, in all kinds of weather, for the privilege of gambling. It was a sight to see. Resorts had no marketing problems. Its only concerns were logistical: crowd control, security, staffing, clean up, and counting money.

Resorts International had pulled off one of the biggest business coups ever. It was beyond anything Crosby had imagined.

While the temporary license proved to be a boon to Resorts, it was a nightmare to the Division. Under the Casino Control Act, the Anglo-Saxon tradition of presuming a person innocent until proven guilty is reversed. In order for Resorts’ application to be approved, it was supposed to show it was worthy of a license, namely, that it was free from any wrongful conduct or associations that might lessen the public’s confidence in its ability to run a casino honestly. However, once the temporary license was granted, the burden of proof was effectively reversed. It was thrown back on the Division to show Resorts was unfit.

The Division’s report was submitted to the Commission in December 1978, more than six months after the public had begun gambling in Atlantic City’s first casino. To the dismay of the procasino forces and the outrage of Jim Crosby, the Division recommended denial of a permanent license. In its report, the Division cited 17 “exceptions”—investigative findings—comprising the basis for its decision to oppose the granting of a license to Resorts International. A majority of the 17 exceptions dealt with Mary Carter Paint’s and Resorts International’s activities in the Bahamas. The report detailed Resorts dealings with Wallace Groves and the payments to Bahamian government strong man, Sir Stafford Sands. The Division charged that in establishing the Paradise Island Casino, Crosby’s firm had secured financing through persons of unsuitable character, including several whose licenses as stockbrokers had been revoked for manipulating the stock of Mary Carter Paint. There were others who had been disciplined for violating criminal banking laws.

The Division claimed that in operating Paradise Island, Resorts had continued its association with people linked to the underworld after informing the Bahamian government it had ended such relationships. The report accused Resorts of maintaining an unrecorded cash fund from which it made payments to government officials in the Bahamas in exchange for what Resorts described as “goodwill” treatment. Finally, the Division was critical of Resorts’s accounting and internal controls for both the Paradise Island and the “temporary” Atlantic City casino.

The report complained that the procedures used prevented an accurate accounting of the amount of cash flowing through the gambling operations. The Division noted that these practices had been criticized by Resorts’ own security agency, Intertel, as including procedures that create a “wide open area for theft” in the casino. The Division argued that by continuing these practices, after warnings from Intertel, Resorts’ management wasn’t fit to be licensed. Crosby and his attorneys responded to the Division’s charges by demanding an immediate hearing. They claimed there was nothing new in the report and it could all be explained. Commission Chairman Joseph Lordi set January 8, 1979, as the date on which hearings would begin. When the hearing began, Resorts was represented by Newark attorney Raymond Brown.

At the time, Ray Brown was New Jersey’s pre-eminent criminal trial attorney. A tall, thin, light-skinned black man in his mid-60s with a gray mustache, Brown was an unassuming figure. Usually attired in baggy suits and scuffed up shoes, his looks were deceiving. As an attorney he was a tiger and dominated every courtroom he entered. As a tactician, he was unsurpassed. Since the burden of proof lay with Brown’s client to show it was worthy of a license, Resorts had the chance to respond to the Division’s report prior to the state putting on its case. Rather than tackling the 17 exceptions head-on from the start, Ray Brown began his case by calling a list of witnesses whose testimony had nothing to do with the Division’s charges. Brown asked his witnesses questions about such things as banquet facilities, meeting rooms, parking spaces, and specifics on the hotel’s wiring, plumbing, ventilation, and numerous details on the renovation work at Resorts’ hotel.

Brown’s strategy was calculated to lull the Commission and bore the media away from the hearings. It worked. At one point, G. Michael Brown, the deputy attorney general handling the state’s case, offered to dispense with the witnesses and formally agree that the hotel met the Commission’s requirements, but Ray Brown refused and proceeded with his case as planned. As the hearing wore on, Ray Brown eventually produced Jim Crosby and the other key corporate officers. They explained away Resorts’ past associations by testifying that once a person’s unseemly background was brought to management’s attention, the relationship was severed. As for the dealings with the Bahamian government, and the payment of $250,000 to Stafford Sands, that was just the way things were done in the Bahamas.

Ray Brown’s presentation to the Commission consumed nearly six weeks. The Division’s case, presented by Michael Brown, was completed in three days. It was hardly what was expected from reading the Division’s report. Michael Brown called several staff investigators who recounted interviews with individuals who had given them damning information about Resorts. Their statements were a poor substitute for direct testimony from the informants themselves. The Division’s presentation to the Commission never measured up to the advance billing of the 17 exceptions reported by the media prior to the hearing. In the end, the Commission voted unanimously to reject the Division’s recommendation and granted Resorts International a permanent casino license.

CBS News editorialized on the Commission’s decision by giving a mock lecture to future casino applicants:

You should know it’s okay to have employees who gained their experience in illegal gambling operations … to have kept employees on the payroll even after you had good reason to suspect they had connections with organized crime … to have given payments to officials of a foreign country where you had a casino, and to have improperly recorded these payments on your company’s books … the trick is to admit these things and say sure, you did them, but that you don’t do them anymore.

Regardless of what the media had to say about Resorts International’s corporate ethics, it was right at home in Atlantic City. Nucky Johnson and Jim Crosby would have gotten along just fine.

Jonathan Pitney

Jonathan Pitney was a country doctor who yearned to be more. He dreamt of fortune and fame through the development of a “beach village” for the wealthy. Photo taken 1840.